Thailand Law Journal 2013 Fall Issue 1 Volume 16

Japanese Approach on Piercing the Corporate Veil

Japanese jurisdiction also grants significant concern on synchronization of piercing the veil doctrine as well, since after the World War II many corporations have been established to serve the flourish of economy, some of them were formed with hidden intention to abusively shield the individual shareholders from legal enforcement, such as delinquency of taxes.⁶⁴ The (houjinkakuhininnohouri or "disregard of the corporate personality doctrine") was initially defined in the paper of Prof. Kenichiro Osumi in 1950.⁶⁵ Equitability and justifiability, as in U.S. jurisdiction, are the main purpose of Japanese juridical branches to enforce the piercing scheme.⁶⁶

Japanese courts also recognize the establishment of principles concerning piercing the corporate veil. An introduction of this legal doctrine to Japan was made by a Supreme Court decision of 27 February 1969⁶⁷, stating that "where the legal personality of [a company] is nothing more than a mere shell, or where it is misused in order to avoid the application of legislation…it will be necessary to pierce the corporate veil."⁶⁸

Two main factors for determining whether the corporate personality shall be disregarded can be extracted from Supreme Court of Japan's decision rendered on February 27, 1969. These factors are "(1) when there is intentional perversion of the corporate personality or (2) when the corporation is the mere adjunct or alter ego of a shareholder." Doctrine of perversion seems to be the fruits of old American case law or German law, and the alter ego doctrine shares similarity with to instrumentality rule"⁶⁹ which has influenced the courts 'discretion in U.S. for decades. As a consequence of this Supreme Court decision, an allowance is granted to many courts on disregarding the corporate entity under such circumstantial conditions.⁷⁰

Thai Law and the Settlement of Piercing the Corporate Veil Doctrine Thailand began to adopt piercing the corporate veil, which had been enforced in foreign countries' law, since 1917 A.D. by prescribing it in various acts which are:-

1) Trading with the Enemy Act B.E. 2460 (1917 A.D.).

This act prohibits any Thai people and foreigners who live in Thailand from making any contract or any agreement or having any trading relationship with any alien enemy who are German, Austrian and Hungarian which are the war enemy against Thailand. This act prohibits any trading no matter direct or indirect trading. Any contract which is against this act will be void.⁷¹

The importance of this act is in section 8 which allows the minister to sequestrate and dissolve any business organizations that conduct business with an alien enemy. The notable point is that "alien enemy" does not include only natural persons, partnerships or corporations but also means members in limited partnerships and shareholders in corporations. Therefore, although the corporations is registered in Thailand (which means it is Thai corporation), but some or all of the shareholders hold an enemy nationality, that corporation are defined as an alien enemy. This rule shows that the act disregards the separation of corporate entity concept.⁷²

2) Act on Confinement and Business or Asset Control of the Enemy of United Nations B.E. 2488 (1945 A.D.).

The importance is in section 3 which states that if any person, without any permission from the government officer, have made any agreement with the person who is the enemy of United Nations, that agreement or contract will be void. This act defines "the person who is the enemy of the United Nations" as natural person, corporation, foundation, general partnership and other organizations with no regard to their registration. Moreover, although these organs are legal entities that are registered under Thai law in Thailand but if their business and purpose benefit any person who is the enemy of UN (such as some shareholders hold enemy nationality), that legal entity is also considered as the enemy of United Nations. Section 7 of this act grants power to the government officer to take over such business and sequestrate all assets and dissolve such business.⁷³

3) Foreign Business Act B.E. 2542 (1999 A.D.)

This act involves the controlling of foreign business in order to maintain the balance of national trade and business power and to benefit the whole nation. This act limits foreigners' rights which affect the structure of shareholding or possessing of such business.

According to this act, section 4 states that "Foreigner" means:-
(1) Natural person not of Thai nationality.
(2) Juristic person not registered in Thailand.
(3) Juristic person registered in Thailand having the following characteristics.
(a) Having half or more of the juristic person's capital shares held by persons under (1) or (2) or a juristic person having the persons under (1) or (2) investing with a value of half or more of the total capital of the juristic parson.
(b) Limited partnership or registered ordinary partnership having the person under (1) as the managing partner or manager.
(4) Juristic person registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3), or a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital.

For the purpose of the definition, the shares of a limited company represented by share certificates that are issued to bearers shall be deemed as the shares of foreigners unless otherwise provided by ministerial regulations.

This rule shows that this act applies piercing the corporate veil doctrine by defining the legal entity, although registered under Thai law, as a foreigner if such legal entity contains majority of foreign shareholders because they can control the whole business which means they are the same entity as corporation or partnership.⁷⁴

4) Land Code

Land Code limits the title of land possession of foreign legal entity (natural and juristic person).

62. "A subjective test with which a court weighs competing interests, e.g. between an inmate's liberty interest and the government's interest in public safety, to decide which interest prevails." See http://www.law.cornell.edu/wex/balancing_test.

63. Barber supra note 1. at 375.

64. (Katsutoshi Nishikawa), (Application of the Doctrine of Piercing the Corporate Veil in Disposition for Tax Delinquency), publication of Hiroshima Taxation Bureau Collection Division, at 353, available at http://www.nta.go.jp/ntc/kenkyu/
ronsou/30/224/ronsou.pdf.

65. Id. at 363.

66. (Yoko Tamura), (The Case Studies of Piercing the Corporate Veil Doctrine), Ritsumeikan University Law Journal, at 141-145, available at http://www.ritsumei.ac.jp/acd/cg/law/lex/07-4/tamura.pdf.

67. http://www.tomeika.jur.kyushu-u.ac.jp/corporate/case/02_en.pdf. "X, an owner of the shop in question, entered into a shop lease agreement for a 5 year lease period on February 1961 with Y joint-stock company (kabushiki kaisha). Y joint-stock company, which sold electrical equipment, etc., even though it was a joint-stock company, was a company organized only for tax advantages, and was actually an individually-owned company (kojinkigyo) by A as representative director, and therefore X entered into the agreement without recognizing whether its counterparty, an electrical shop, was a corporate organization or an individually-owned company and in the end, X entered into the agreement with A as an electrical shop.

Early in 1966, when X requested that A vacate the shop in question returning the shop to X, A delivered a signed promise to the effect that A would vacate the shop by August 19 of the same year. However, A had not vacated the shop by that date, and then X filed a lawsuit in court seeking to have A vacate the shop, with A as a defendant. During the continuance of this lawsuit, a settlement, to the effect that A should vacate and return the shop to X, was reached between X and A at the court's
recommendation. However, A claimed that A would not vacate the part of the building used by Y jointstock company because the only party to the settlement was A, and X had filed the lawsuit in question claiming to vacate the building in question etc., against Y joint-stock company as a defendant."

68. http://www.tomeika.jur.kyushu-u.ac.jp/corporate/index.html.

69. See note 50.

70. Aotake Shoichi, The Close Corporation in Japanese Law, Hokkaido University Law Journal, at 1886., available at http://eprints.lib.hokudai.ac.jp/dspace/bitstream/ 2115/16339/1/31(3-4)2_p508-493.pdf.

71. ChiRaMongkhonPhaNit, supra note 11 at 19.

72. Id.

73. Id. at 20.

74. Id. at 21.